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9/18/08 — September Mid-Month Revenue Collections

September 18, 2008

Honorable Chairmen and Ranking Minority Members of the Ways and Means Committees:

Pursuant to chapter 196 of the Acts of 2008, the Department of Revenue hereby submits its midmonth revenue tax collection report for the month of September 2008. The attached table shows September 2008 month-to-date and FY2009 year-to-date tax revenue collections through September 15,2008, along with the dollar and percentage changes from the same collection period in September 2007. Also shown are the percentage growth amounts for the full month of September 2008 and for FY2009 year-to-date through the end of September 2008 that were assumed in the benchmarks corresponding to the FY2009 revenue estimate of $21.402 billion. Please note that the $21.402 billion estimate and the September month-to-date and year-to-date budgetary fund collection totals do not include increased cigarette tax collections resulting from the increase in the cigarette tax collections, which are dedicated to the Commonwealth Care Trust Fund, a non-budgetary fund. However, the increase in cigarette tax collections resulting from the higher cigarette tax is shown in a separate line at the bottom of the table.

Through September 15, 2008, September 2008 month-to-date tax collections totaled $889 million, down $200 million from the same period in September 2007, with the full month September benchmark (based on the FY09 consensus tax revenue estimate adjusted for subsequent tax law changes) projecting total tax revenues of $2.288 billion, an increase of $80 million from September 2007. Most of the month-to-date decline through September 15th was the result of lower withholding collections, which were down $73 million, or 16.4% from the year-earlier period, and weaker corporate business taxes, which were down $84 million, or 20.6% from a year ago. As we noted in our August revenue press release, the strength in August withholding resulted from timing factors that inflated revenue collections, and we expected September collections to drop off as a result. While the expected September drop in withholding has in fact occurred, the month-to-date decline is greater than can be explained by the reversal of the exaggerated August growth, and it will not be until the end of September (and possibly the first week of October) that it will be known whether other timing factors are at work.

The $84 million month-to-date decline through September 15th in corporate/business taxes (compared to the full month consensus benchmark that projected a decline of $9 million) was primarily the result of lower estimated payments in the corporate excise and public utilities taxes. While some of this decline may be due to the weakening economy, it is also possible that increased use of tax credits and timing factors are at work as well. We will not know until the end of the month whether any timing factors are involved.

Several additional caveats are in order when considering the attached report:

• In September, the Commonwealth receives and processes most of its revenues during the second half of the month, primarily because most quarterly income tax estimated payments, though due on September 15th, are remitted via mail and processed in the last two weeks of September, and sales, meals, motor fuels, and rooms tax returns are due on the 20th of each month. In addition, because of differences in the September 2007 and 2008 calendars, payments for all these tax types are due two deposit days later this year than last. In particular, month-to-date growth comparisons with last September for income tax estimated payments and sales and meals taxes are not meaningful at this point. For these tax types, month-to-date growth is not necessarily indicative of what final growth will be for the full month;

• September 2008 has two more deposit days than did September 2007, which means that collections over the remainder of September 2008 could be higher than they were in September 2007. (This year's longer month was reflected in the September 2008 monthly benchmarks.) As a result, by the end of this month, September 2008 collections in some revenue categories could gain ground compared to September 2007;

• There may be other differences in the due dates for certain tax payments from one fiscal year to the next (e.g., in the timing of refund cycles) which complicate month-to-date comparisons to the prior year.

As a result of these considerations, revenues received through the 15th day of September as reported in the attached table are not necessarily indicative of what the final results for the full month will be. Specifically, they do not represent one-half of the revenues to be received in the full month and are at best a mere snap-shot picture of the revenues received through the reported date. Any variances from the monthly benchmark at this point should not be relied on as an indicator of what the total final revenues for the month will be, compared to the monthly benchmarks.

If you have any questions concerning this report, please contact me (at 626-2201), or Howard Merkowitz, Director of the Office of Tax Policy Analysis (at 626-2100).

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